Sim 1 - Chapter 1 Flashcards
What is the tax treatment:
retainer fees from clients
Schedule C
Retainer fees are an example of advance payments for services, which are generally reported in the year of receipt by both cash-basis and accrual-basis taxpayers, regardless of whether they are already earned. Such trade or business income is reported in Schedule C, Profit or Loss from Business (Sole Proprietorship), for self-employed individuals.
What is the tax treatment: Oil Royalty Reserves
Reported on Schedule E
Schedule E is used to report ordinary income and losses from royalties, as well as rental real estate, partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits (REMICs).
What is the tax treatment: Interest Income on General Obligation State and local government bonds
These are muni bonds - excluded from gross income
What is the tax treatment: Interest on refund of federal taxes
Reported on Schedule B
Although federal tax refunds are not taxable, interest income received from the federal government is fully taxable and reported on Schedule B, Interest and Ordinary Dividends.
What is the tax treatment:
Death Benefits from term life insurance policy on parent
Not Taxable
Proceeds from a life insurance policy are generally excludable from gross income under IRC §101.
What is the tax treatment:
Interest income on U.S. Treasury bonds.
Reported in Schedule B — Interest and Dividend Income.
While state and local municipal bond interest is excludable from gross income under IRC §103, interest income received from the federal government is fully taxable and should be reported on Schedule B, Interest and Ordinary Dividends.
What is the tax treatment:
Share of ordinary income from an investment in a limited partnership reported in Form 1065, Schedule K-1.
Reported in Schedule E — Supplemental Income and Loss.
Schedule E is used to report ordinary income and losses from partnerships, as well as rental real estate, royalties, S corporations, estates, trusts, and real estate mortgage investment conduits (REMICs).
What is the tax treatment:
taxable income from a rental or townhouse
Reported in Schedule E — Supplemental Income and Loss.
Schedule E is used to report ordinary income and losses from rental real estate, as well as royalties, partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits (REMICs).
What is the tax treatment: Prize won as a contestant on a TV quiz show
Taxable as other income on Form 1040.
Prizes and awards are generally included in gross income and are reported directly on Form 1040 as other income. Note: Exceptions apply to certain non-cash employee achievement awards and awards for accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields (e.g., the Nobel Prize), if certain requirements are met.
What is the tax treatment:
Payment received for jury service.
Taxable as other income on Form 1040.
Jury duty pay is included in gross income and reported directly on Form 1040 as other income. Note: This is true even if the jury duty pay is remitted to the taxpayer’s employer, but the taxpayer can claim a deduction in arriving at adjusted gross income for the amount remitter to their employer.
What is the tax treatment:
Dividends received from mutual funds that invest in tax-free government obligations.
Not taxable
What is the tax treatment:
Qualifying medical expenses not reimbursed by insurance.
Reported in Schedule A — Itemized Deductions (deductibility subject to threshold of 10% of adjusted gross income).
Unreimbursed medical expenses may be claimed as an itemized deduction in Schedule A to the extent they exceed 10% of the taxpayer’s adjusted gross income. Note: For tax years prior to 2017, a 7.5% threshold applies on the return of an individual age 65 or older.
What is the tax treatment:
Personal life insurance premiums paid by Green.
Not deductible.
IRC §264 provides that life insurance premiums are generally not deductible if the taxpayer is directly or indirectly a beneficiary under the policy.
What is the tax treatment:
Expenses for business-related meals where clients were present.
Partially deductible in Schedule C — Profit or Loss from Business.
Business-related meals are generally 50% deductible so long as the expense is (1) not lavish or extravagant, and (2) the taxpayer (or an employee) is present during such meals. Business expenses are reported in Schedule C, Profit or Loss from Business (Sole Proprietorship), for self-employed individuals.
What is the tax treatment: Depreciation on personal computer purchased in Year 2 used for business.
Reported in Form 4562 — Depreciation and Amortization, and deductible in Schedule C —Profit or Loss from Business.
Depreciation on business assets is claimed on Form 4562, Depreciation and Amortization, and is carried to Schedule C, Profit or Loss from Business (Sole Proprietorship), for self-employed individuals.
